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How can each one of the business-level strategies be used to position the firm relative to the five forces of competition in a way that permits the earning of above average profits?

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Introduction

Question 2 How can each one of the business-level strategies be used to position the firm relative to the five forces of competition in a way that permits the earning of above average profits? Introduction Competitive strategy is the basis for much of modern business strategy. Business level strategy is defined as an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets (Hanson et. al., 2002). As we enter into the 21st century landscape, competition among firms is increasing and companies are committed to the importance of competing successfully in the global economy constantly scan developments in the world's markets to identify emerging opportunities to exploit their competitive advantages. Business-level strategies are used to be position the firm relative to the five forces of competition in a way that permits the earning of above average profits. The business unit level is the primary context of industry rivalry. The strategic business manager seeking to develop an edge over rival firms can use this model of Michael Porter's five forces to understand the industry context in which the firm operates. Through this, it proves how the successful attainment of generic strategies of Porter can improve a firm's relative power through the five forces that determine an industry's average profitability (Ward and Griffiths, 1998). Michael Porter's Generic Strategies Michael Porter presented three generic strategies that a firm can use to overcome the five forces and achieve competitive advantage. ...read more.

Middle

Through continuous efforts to reduce costs to levels that are lower than competitors', cost leaders become very efficient. This is because they enhance profit margins; ever-improving levels of efficiency serve as a significant entry barrier to potential entrants. To earn even average returns, new entrants must have the competencies required to match the cost levels of other companies (Dess and Lumpkin, 2003). For an example, Dell Computers Corporation implemented its strategy with the Dell advantage, which is based on direct relationships, low cost, speed to market and e-commerce expertise as much as it is on Internet hardware, appliances and customer services and support. Dell was able to pass along to its customers the savings from reductions in system component costs quickly because it maintained very low inventories. Cost-efficiency has been reinforcing Dell as the competitive advantage in this PC industry. Low-cost assembly and efficient customer service has intimidate the trust of customers into Dell brand (www.dell.com, 2004). In conclusion, this strategy emphasizes efficiency. By producing high volumes of standardized products, the firm hopes in advantages of economies of scale and experience curve effects. The product is often a basic no-frills product produced at a relatively low cost and made available to a very large customer base. This generic strategy can be used to position the firm relative to the five forces of competition in a way that permits the earning of above average profits. ...read more.

Conclusion

Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well (Stacey, 1993). In contrast to firms that implement the cost leadership and differentiation strategies, a company that employs a focus strategy seeks to use its core competencies to serve the needs of a certain industry segment. Firms can either choose to use focused cost leadership strategy or focused differentiation strategy. For example, IKEA the global furniture retailer seeks to provide customers with a low cost make up of the focused cost leadership strategy (Hanson et. al., 2002). Focus strategy requires that a firm either have a low-cost position with its strategic target, high differentiation, or both. As it has been discussed with regard to cost and differentiation strategies, these position provide defenses against each competitive force. Focus is also used to select niches that are least vulnerable to substitutes or where competitors are weakest. For example, the BODY SHOP is the leading company to focus on that group of women who want chemical-free cosmetics made from 'natural ingredients' and without being tested on animals. BODY SHOP may be able to focus on a more narrowly defined competitive segment and 'out-focus' the focuser. BODY SHOP has used its reputation for environmental work based on the generation of publicity in the area to differentiate itself from other firms in a tight market. And today, we could see BODY SHOP is found doing well around the world (Hanson et. al., 2002). ...read more.

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